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Katz-Crank v. Haskett

United States District Court, S.D. Indiana, Indianapolis Division

March 31, 2014

SHERRY KATZ-CRANK a Michigan resident, Plaintiff,
v.
KIMBERLY HASKETT individually and in her official capacity as an investigator for the Indiana Secretary of State, CHARLIE WILLIAMS individually and in his official capacity as an investigator for the Indiana Secretary of State, TODD ROKITA individually and as former Secretary of State for Indiana, CARL BRIZZI individually and as former Prosecutor for Marion County, Indiana, MARY HUTCHISON individually and as Assistant Prosecutor for Marion County, Indiana, BARBARA CRAWFORD individually and as Former Assistant Prosecutor for Marion County, Indiana, THOMAS TRATHEN individually and as Chief Investigator for Marion County, Indiana, and MARION COUNTY OF INDIANA, Defendants.

ENTRY ON MOTION TO DISMISS AND MOTION FOR JUDGMENT ON THE PLEADINGS

TANYA WALTON PRATT, District Judge.

This matter is before the Court on a Motion to Dismiss (Dkt. 23) filed by Defendants Kimberly Haskett, Charlie Williams, Todd Rokita, Carl Brizzi, Mary Hutchison, and Barbara Crawford, and a Motion for Judgment on the Pleadings (Dkt. 37) filed by Defendants Thomas Trathen and Marion County, Indiana. The dispute in this case stems from Plaintiff Sherry Katz-Crank's ("Katz-Crank") allegations that she was wrongfully investigated by the Defendants for aiding and abetting the theft of $22 million in cemetery trust assets in Indiana. She alleges the Defendants had her falsely arrested, maliciously prosecuted, as well as subjected to intentional infliction of emotional distress and abuse of process. She has asserted claims under state law and 42 U.S.C. ยงยง 1983, 1985 and 1986 against all Defendants. Defendants contend that they are absolutely immune as to both federal and state law claims and that certain claims are time barred. For the reasons set forth below, the Motion to Dismiss is GRANTED, and the Motion for Judgment on the Pleadings is GRANTED.

I. BACKGROUND

The following facts are from Katz-Crank's Complaint (Dkt. 1) and are accepted as true for purposes of this Motion to Dismiss and Motion for Judgment on the Pleadings. Killingsworth v. HSBC Bank Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007); Thomas v. Guardsmark, Inc., 381 F.3d 701, 704 (7th Cir. 2004). Katz-Crank is an attorney who has practiced law in the State of Michigan since 1987. She graduated from Notre Dame Law School in the top 25% of her class and has maintained a diverse and distinguished legal career. In 2004, she operated her own law firm known as Corporate Legal Counsel in East Lansing, Michigan, and in 2006 she formed a management company for the purpose of providing for the management of trust services to cemeteries. Kimberly Haskett ("Haskett") and Charlie Williams ("Williams") are investigators in the Securities Division of the Secretary of State's Office for Indiana. Todd Rokita ("Rokita") is the former Indiana Secretary of State. Carl Brizzi ("Brizzi") is the former Prosecutor for Marion County, Indiana. Mary Hutchison ("Hutchison") and Barbara Crawford ("Crawford") were deputy prosecutors for Marion County during the relevant time period. Thomas Trathen ("Trathen") is the Chief Investigator for Marion County, Indiana.

A. The Smart Transaction

From approximately 1999 to 2007, Katz-Crank provided legal representation to twenty-eight cemeteries in the State of Michigan (the "Michigan Cemeteries"). In August 2004, the then owner of Michigan Cemeteries, Craig Bush ("Bush"), sold his interest in the Michigan Cemeteries to Clayton Smart ("Smart") of Oklahoma, for approximately $45 million (the "Smart Transaction"). In Michigan, cemeteries are required by law to place in trust a portion of the proceeds from the sale of each cemetery plot for the care and maintenance of the cemetery into the future. These trusts are generally known as "perpetual care trusts." Cemeteries in Michigan are also required to place into trust the value of merchandise purchased by cemetery consumers, such as vaults and markers, to ensure that the money is available to purchase the goods at the time they are required. These trusts are generally known as "merchandise trusts." Pursuant to Michigan law, a trustee is selected by the cemetery owner to oversee the trust accounts.

At the time of the Smart Transaction, there was over $61 million in both the perpetual care and merchandise trusts for the Michigan Cemeteries. The trustee for the Michigan Cemeteries' trusts was Community Trust and Investment in Indiana ("Community"). The investment advisor for the Michigan Cemeteries' trust was Mark Singer ("Singer"), Vice-President of Wealth Management in Pennsylvania for Smith Barney. Katz-Crank became acquainted with Singer through her representation of the Michigan Cemeteries.

B. The Nelms Transaction

In 2004, Katz-Crank performed legal services for Robert Nelms ("Nelms"), who was an operator of cemetery and funeral homes in New Jersey seeking to purchase certain cemeteries and funeral homes in the states of Indiana, Michigan and Ohio (the "Nelms Transaction"). The sale was completed on or about December 22, 2004 with the assistance of approximately seven different law firms, including Katz-Crank's firm. Katz-Crank provided Nelms with a legal opinion as to whether a cemetery could lawfully issue debentures in Michigan, and she was paid at her normal hourly rate and submitted bills on a monthly basis. She did not negotiate the purchase of the cemeteries by Nelms, nor did she draft the purchase agreement. Following the closing of the Nelms Transaction, which occurred at a title company in Indiana, the cemetery trust proceeds were transferred from Forethought Trust and Savings to Community. At the time of the Nelms Transaction, there was approximately $22 million in the perpetual care and merchandise trust accounts of the cemeteries. Katz-Crank had no further involvement with Nelms until approximately August 2005.

C. Cemetery Trust Funds Misappropriations

In October 2005, Singer and Smart contacted Katz-Crank and requested that she attend a meeting with Community to investigate Smart's allegations that Community had mismanaged the Michigan Cemeteries' trust accounts. Ultimately, the Department of Financial Institutions for the State of Indiana concluded that Community had mismanaged the cemetery trust accounts, and required Community to divest itself of all clients with cemetery trust assets. At Smart's request, Katz-Crank located another banking institution in Michigan, Citizens Bank in Flint, Michigan ("Citizens"), to act as custodian for the Michigan Cemeteries' trust funds. Citizens agreed to act as custodian of the Michigan Cemeteries' trust funds for Smart and requested that Katz-Crank provide legal services and coordinate the accounting and auditing functions for the trusts. In December 2005, Katz-Crank formed Security Financial Management Company ("SFMC") to provide these services. SFMC entered into an agreement to act as trustee for approximately $60 million in Michigan Cemeteries' trust assets. Smart directed SFMC to use Smith Barney and financial advisor Singer to handle the investments for the trust assets.

Less than one month after SFMC was appointed trustee for the Michigan Cemeteries' trusts, Katz-Crank discovered wire information that indicated Smart had misappropriated substantial trust assets while the funds were under the control of the former trustee, Community. She immediately reported this activity to the Michigan Attorney General's office, the Michigan Cemetery Commission, the Ingham County Prosecutor, and the Tennessee Bureau of Investigation, among others. On January 22, 2006, Katz-Crank withdrew from her long-standing representation of the Michigan Cemeteries, and in February 2006 she also advised executives at Smith Barney of her concerns. Following Katz-Crank's report to the authorities, SFMC attempted to freeze all of the Michigan Cemeteries' trust funds to avoid any further illegal activity. Smith Barney, without SFMC's authorization or approval, terminated SFMC's accounts with Smith Barney and approved a transfer of the Michigan Cemeteries' trust funds to INA fsb, a trustee from the State of Delaware, where the misappropriation of the trust assets by Smart and Singer continued. Following the termination of SFMC's accounts with Smith Barney, Katz-Crank again contacted the authorities to voice her concerns that Smith Barney's actions were furthering the depletion of the Michigan Cemeteries' trust funds.

Eventually, Singer was indicted in Indiana and Tennessee, and is currently serving a sentence in Indiana for the commission of several felonies, including fraud, and is awaiting trial in the State of Tennessee for similar acts. Smart was also indicted and is currently serving a sentence in Tennessee for the commission of several felonies, including fraud. He also pled guilty to similar acts in Michigan, and pled guilty to federal charges of tax evasion. The Financial Industry and Regulatory Authority, the regulatory body responsible for the oversight and regulation of broker deals, fined Smith Barney $1.5 million for inadequately supervising Singer.

In 2007, Katz-Crank discovered that Nelms was also under investigation for misappropriation of cemetery trust assets, and she terminated his involvement with SFMC and Citizens where he had also placed cemetery trust assets. Katz-Crank contacted Haskett with the Indiana Secretary of State Securities Investigation Unit and offered to provide assistance and respond to any inquiries she may have regarding Nelms. Haskett never responded to Katz-Crank's telephone call and never requested any information from her or SFMC. Katz-Crank alleges that Haskett contacted Katz-Crank's clients and prospective clients and advised them that she was involved in illegal activity and that they should not continue to use her services.

In 2008, Nelms was charged with embezzling approximately $22 million in cemetery trust funds, pled guilty, and was sentenced to eight years' house arrest and community placement. He also agreed to testify against Katz-Crank as part of the plea bargain. Nelms also pled guilty to similar charges in Michigan, and will serve approximately eighteen months in jail.

D. Katz-Crank's Arrest and Prosecution

On or about July 18, 2008, [1] Katz-Crank was arrested and charged in Marion County, Indiana with five felony counts of theft of over $100, 000.00 each. She was accused of aiding and abetting Nelms with the theft of cemetery assets when she provided legal services to him in connection with the Nelms Transaction in December 2004. Following her release from the Marion County processing center, Katz-Crank alleges she was subjected to two and a half years of delay before receiving a trial by jury. She alleges that Brizzi failed to turn over portions of the grand jury transcripts as required by Marion County court rules and procedures and by court order, and failed to provide exculpatory evidence to the grand jury. On December 7, 2010, a jury found Katz-Crank "innocent"[2] of all charges, and the criminal charges against her were dismissed.

Katz-Crank alleges that her wrongful arrest and prosecution by the Defendants led to loss of her liberty, her ability to pursue her profession, loss of her business, and loss of reputation in her community and profession. Specifically, the political hubris exercised by the Indiana Secretary of State and Marion County Prosecutor directly resulted in the loss of her law firm, other business interests, her savings and pension and financial losses of over $2.1 million. In addition, Katz-Crank suffered from significant mental and physical ailments including major depressive disorder, post-traumatic stress disorder, and various physical disorders.

Ironically, Katz-Crank's actions in reporting the alleged scheme to authorities in Michigan and Tennessee ultimately lead to the conviction of the individuals responsible for the thefts, and the ...


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